Obama Has Been The Best President For The Stock Market Since Eisenhower

Barack Obama often gets slammed for his stewardship of the U.S.
economy, but for stock investors, he's been one of the best
presidents since World War Two.

At 1,400, the S&P 500 on Friday was closing in on a four-year
high and was up 74 percent since January 20, 2009, the day Obama
took office. Not since Dwight Eisenhower's first term has a
president had such a strong run for their first term.

That rally might be just enough to get Obama re-elected, making
him the first sitting president in the post-war era to win a
second term with a jobless rate higher than 7.2 percent.

"Even though business and corporate sentiment is not good for
Obama because they don't think he's been good for the economy,
the fact that the market has done very well under him is a
positive," said Ethan Siegal, head of The Washington Exchange,
which analyzes politics for institutional investors.

Soon after taking office, the president even waded into the
dangerous territory of stock market prognostication.

On March 3, 2009, Obama, responding to a question about a market
that was plumbing 12-year lows, said: "What you're now seeing is
profit and earning ratios are starting to get to the point where
buying stocks is a potentially good deal, if you've got a
long-term perspective on it."

The S&P 500 hit bottom a week later. Three years on, U.S.
stocks have more than doubled, adding $6.8 trillion in market
capitalization.

"The stock market is a barometer not of the absolute level of the
economy but of improvement in the economy," said former Merrill
Lynch strategist Richard Bernstein, who now runs his own
investment management firm. "There is no doubt the economy has
improved in the last four years."

Conventional wisdom has it that a stock market rally is good news
for a sitting president, and it often has been. But not all
rallies are the same, and the lack of a concurrent boost in home
values, along with the weak job market, may mean the gains over
the last three years don't have the same benefit for Obama.

Tom Wales, director of North America analysis at Oxford
Analytica, noted that most Americans who hold stocks do so in
their 401(K) retirement accounts, and "if you're worried about
your job, about your mortgage being underwater, then the fact
that your 401(K) looks less bare is not that reassuring."

NO WEALTH EFFECT

Polls in recent days have shown Obama widening his slim lead over
Republian Mitt
Romney even though voters say they are worried about the
economy and the country's direction. The latest Reuters/IPSOS
poll gives him a seven-point lead.

Betters give Obama a strong chance to win. Online betting site
Intrade had the president's reelection chances at 59 percent,
against 38 percent for Romney.

A 2012 study by the Socionomics Institute in Atlanta found that
the performance of the Dow Jones Industrial Average in the three
years preceding election day was a better predictor of results
than overall growth, unemployment or inflation.

A gain of 20 percent or more in the Dow all but assured victory
for an incumbent, while a fall of 10 percent or more meant the
president should start brushing up on his golf game.

That ought to be good news for Obama: the Dow is up 35 percent
since November 1, 2009. Ronald Reagan and Bill Clinton presided
over respective gains of 25 percent and 35 percent. Both coasted
to reelection.

"Research on annual price performance dating back to 1944 shows a
link between the performance of the stock market and factors such
as the likelihood the incumbent will be reelected," said Sam
Stovall, chief investment strategist for Standard & Poor's
Equity Research Services.

But in the 1990s, for instance, stocks rose amid an economic boom
that boosted job growth and home prices, which made everyone feel
richer. This "wealth effect" has been largely absent this time.

While record-low interest rates and cheap financing from the
Federal Reserve have helped push up stocks, they have done little
to ease the blow of a housing collapse or encourage firms to go
on a hiring spree. The jobless rate last month stood at 8.3
percent, exactly where it was just after Obama took office.

A slow-growing economy with nearly 13 million Americans out of
work means "nobody is feeling flush just because we've had a
market rally," said Sean West, who heads U.S. analysis at The
Eurasia
Group, a consultancy that analyzes political developments for
companies and investors.

"Even if you're doing well now, who knows where you'll be in six
months? In such a high volatility environment, it's hard to feel
good."

Things don't always work out as planned. A weak economy was
credited with foiling George H.W. Bush's re-election attempt in
1992, even though the S&P rose 46 percent over his term in
office. It rose a more modest 4.46 percent in 1992.

Added David
Kelly, chief global strategist at JPMorgan Asset Management:
"I suspect if you stopped 20 people on the street and asked how
much the value of their 401(K) had gone up in the last three
years, their answers wouldn't come close. So even though the
S&P has more than doubled from its low point in (March) 2009,
most Americans are unaware of that."

POSITIVE SOCIAL MOOD

Even so, Robert
Prechter, president of
Elliott Wave International and one of the authors of the
Socionomic Institute study, says the stock market has such a
strong predictive record because it is usually the best indicator
of voters' mood.

"No specific election outcome is ever assured, but we can say
that social mood has become much more positive during Mr. Obama's
tenure as president," he said, adding, "We are skeptical that the
'wealth effect' matters as much as voters' mood.

"Even though the economy remains weak, the three-year trend
toward more positive social mood should have made voters less
inclined to express bad feelings toward the president," he said.

Indeed,
the latest Reuters/IPSOS poll showed registered voters were still
rated Obama higher than Romney when it comes to jobs, the economy
and tax issues.

John Manley, chief equity strategist at Wells
Fargo Funds Management, said Obama also wins points for
acting swiftly in the early days of his presidency to prevent a
deep recession from becoming a full-fledged depression. "That
quite rightly gives him credit for a decent run in the stock
market," he said.

Of course, personalities and political skills matter, too.

Obama campaign attacks on Romney's record as a private equity
executive at Bain
Capital and his job-creating credentials have been effective,
Eurasia's West said.

That's not to say a big swing in the market between now and
November couldn't shake things up.

"If Europe's debt crisis were to worsen, for instance, and it
knocked 100 points off the market in a day, making Obama look
weak and ineffective, he loses," West said.

"But unless you see the stock market break out one way or the
other, it comes down to who can craft a better story about
economic performance."